T-Mobile has proposed a new solution, called a Dynamic Market Rule, to the debate over how the Federal Communications Commission should run its highly anticipated spectrum auctions scheduled for 2014.
At the center of the debate are Verizon Wireless and AT&T, which are the largest carriers, with the deepest pockets. Some parties fear that, if limits aren’t put on what any one carrier can purchase, Verizon and AT&T will buy up all of the most-valuable spectrum, leaving little to nothing for their smaller competitors.
The auction will include hard-to-obtain low-frequency spectrum, which can penetrate deep into buildings, making it a particular asset to carriers needing to woo consumers with a strong network experience.
Under T-Mobile’s Dynamic Market Rule, the auction would proceed with a spectrum-aggregation limit in place.
“If the Commission’s revenue target is met while the limit is in place, then the auction would be able to close once there is no longer any active bidding,” T-Mobile said in a report filed with the FCC June 21. “Should the bidding fail to clear the revenue target once the limit is completely removed, the Commission would resume the process by starting at the next lower spectrum target with the aggregation limit in place.”
The contested rules have become a partisan issue, with AT&T and Verizon backing House Republicans and T-Mobile and Sprint backing House Democrats.
In April, the Department of Justice studied the issue and concluded that having low-frequency spectrum “may determine [a carrier’s] ability to compete” and therefore the auction’s rules should “ensure that the smaller nationwide networks … have an opportunity to acquire such spectrum.”
House Republicans responded, writing in an April 19 letter to the FCC that the DOJ’s recommendations aren’t consistent with the multiple goals of the 2012 Spectrum Act, which helped to make the auction possible.
“We are concerned that, if the DOJ’s suggestions are adopted, the [FCC] will reduce the potential revenues from the auction and possibly cause the auction to fail.”
While consumer interests, not revenue, are generally the FCC’s focus, in this instance the auction needs to raise at least $7 billion toward the construction of a nationwide public safety broadband network—the First Responder Network Authority, or “FirstNet.”
House Democrats, in a May 16 letter to the FCC, said they agreed that auctions need to generate “sufficient revenue to pay for several critical priorities,” but that achieving that goal and protecting wireless competition “are not mutually exclusive.”
While one position is that auction limits could reduce total revenue, another is that without limits, revenue will also be threatened. In order to participate in the auctions, the carriers have to pay millions of dollars; if they don’t believe they have a real chance of winning anything, they won’t bother participating.
Gregory Rosston, deputy director of the Stanford Institute for Economic Policy Research and one the “foremost experts on spectrum auctions,” according to T-Mobile, said during a June 24 conference call that the Dynamic Market Rule would allow the auction and market to determine whether having limits will create enough revenue, “rather than having a theoretical argument about it.”
“This, to me, has two benefits,” he said. “This is a way of testing the arguments about auction revenue—we can do it and see if it works or not. This mechanism not only changes the nature of the debate but of the auction. It even enables the auction to make more revenue. It’s almost an insurance plan for the FCC to make sure they don’t get it wrong.”
Harold Feld, senior vice president of Public Knowledge, an organization that promotes the openness of the Internet and the public’s access to knowledge, said T-Mobile’s proposal is a way of taking the revenue argument off the table.
“T-Mobile is basically saying, put up or shut up. If revenue is really what you’re concerned about … then you ought to agree with us,” said Feld. “But obviously, Verizon and AT&T and the other people who have fought against limits will have plenty of reasons why they think this is a bad idea.”
Verizon Wireless said it isn’t offering comment on the matter, while AT&T said it is still “reviewing the filing.”